Federal Reserve Chairman Jerome Powell went to Wall Street and was not happy enough to enact whatever rate hikes the Fed had planned for this year, and markets were told to count on three more in 2019. Nobody knows what tomorrow or next month will bring, let alone next year. I came away thinking this guy is trying to pop the stock market bubble.
Initially, markets were higher on the Fed announcement but within an hour they started turning lower. Remember, this was on the Gann annual/seasonal change point. Thursday, on the back end of the Gann window the Dow hit 262 hours off the top, likely the last chance for a Gann turn. It turned out to be a smallish reaction that faded into the morning. From the weekend perspective, we have a breakdown of the stock market out of the Gann window. If this were the poker championship we would be looking at the number of "outs" left for the bulls to salvage the pattern. What I’ve described is the bulls running out of outs and I see only one left. This is now a pattern that is coming to test February support and it needs to turn up on Monday for real. If the Dow doesn’t reverse back up on Monday odds go up exponentially the Jan. 26 top is going to confirm. If that happens, it will likely be the high for the entire year. Remember in December I told you my concern for a market high in January? When it didn’t happen to start out the year it looked like it could be the same old, same old. But the Dow did top in January.
Let’s say it does turn on Monday and we know it just did. Here’s the exclusive you will not get anywhere else. With a high at 26616, the Dow has now changed direction with a bottom at 117-180 min bars. It had to do it right there at the open as the last real out or we could’ve kissed the bull goodbye right here and now.
So, what next?
We need to look at the 116-balance line on the hourly we’ve discussed all month as major resistance. The Dow was affected by the 116 vibration on an hourly chart for a whole month and now it turns on the same vibration on the larger 180 timeframe. Do you get it?
The only time you can get bullish again which means buying in terms of a sustained leg up is if the Dow were to get back up to the balance line and hold it. Nothing has changed in terms of a sustained bull move, we’ve been talking about that condition for a couple of weeks. The difference here is the bull was running out of options. It’s a good start on a great square out. The last thing I have to say about the Dow is if for whatever reason this start fails, we will kiss the bull goodbye.
Sentiment surrounding this move is fear of a trade war with China. With a trade deficit of $500 billion, what is a $50 billion tariff? The news coming out on Monday morning is that fears of a trade war has eased. Perhaps the crowd figured out initial fears were overblown anyway.
If you want a real reason why the market could be in hot water, you should probably look at Facebook and their Cambridge Analytica scandal. Do you realize that all your data has been mined and sold? Plenty of people are very upset over this and now the FTC is looking into Facebook practices. Let’s not forget how the Internet bubble finally burst. Wasn’t it a judge who was looking into breaking up Microsoft? At the very least, the market likely loses important FAANG leadership in Facebook. I don’t think its coming back this time. Facebook as a stock is likely a poisoned well. The initial indication for FB is its down in early trade in the face of this gigantic pop in the market. That’s what a poisoned well is.
How has my bigger picture view of oil worked out? Remember in early February I told you the longer-term calculations for a top were less than ideal. Right now, the long-term oil chart is right back near the high. Oil is also setup once again to turn back down sometime on Monday based on calculations on a 360min chart. From a 66.66 high, the oil chart has now left a tail at 166-360min bars.
Here’s the bottom line, I’ve given you two incredible examples of what Gann taught on 100 years ago. Everyone is looking for holy grail in the markets. There are many market methodologies. But it’s the square out the drives the bus. I first started working them eight years ago and thought their value was limited. The prevailing wisdom is XYZ stock at 30 would go to 60 in 30 days, weeks or months. That’s what most Gann people teach. It took me another 5 to 6 years to get the revelation where the light bulb really turned on that square outs are driving the bus on every chart in time frames from a 1 minute all the way up to weekly/monthly time frames. Retracements are another area the market squares out. Most people believe a pattern will retrace 38, 50, 61 or 78% simply because those are the default settings on your software package. But retracements are also squaring out according to price and time.
What I don’t understand but Prechter has come closest to proving it in his initial Socionomic work which is The Wave Principle of Human Social Behavior and the New Science of Socionomics I’ve referenced so often in this space is the following. Our DNA is tied to the golden spiral. That’s the best explanation you’ll ever get for the Dow topping in the 610-day window back in January. In the 11 plus years I’ve done this column I’ve mentioned when the cycle expires the news event manifests almost by magic. But it doesn’t explain why square outs work. We only know that it does. That also means the following. In the movie "21" the protagonist Ben Campbell stated his non-linear professor told him to always account for variable change. In our work variable change is that condition which is coming against you on the chart you don’t know about. What you don’t know can and will hurt you. Most of the time variable change is that square out most traders have no idea it even exists.